Europhoria: Is Europe’s Market Moment Here?

European markets have been quietly outperforming, powered by strength in banks, industrials, defense, and utilities. In this episode, experts discuss whether Europe’s resurgence is just a short-term rally or the beginning of a longer shift in global capital flows.

Summary – IBKR Podcasts Ep. 359

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Guillaume Roux-Chabert

Well, thank you very much for our new podcast today. This is Guillaume Roux-Chabert from InteractiveBrokers.com Singapore. Today we have a very interesting podcast about market investment risk insights on global equities. 

Indeed, 2025 was ugly—the most geopolitically consequential year since the fall of the Berlin Wall in 1989. And 2026 seems to also have a great deal of history in the making. The US was mainly focused on the AI trade and potential rate cuts, with the exception of the variance surrounding Liberation Day, and non-US markets were driven by a more favorable interest rate environment, trade wars, a weaker dollar, and a renewed focus on defense. 

But of course, we have very recent events that are shaking a bit of this narrative. That’s why I invited two very special guests today. We have Kris Hopkins from the UEX, and we have Olivier d’Assier, the Senior Director of SimCorp, who is part of the Investment Decision Research team on macro and geopolitical thematics.  So I’d like to have his insights and his point of view about the implications for portfolios and prices. We’re starting with one first question regarding the events that happened in the last few days. Olivier, what are the markets pricing in in terms of how it works and how it will end according to you? 

Olivier d’Assier

So this is quite interesting because we’ve seen a muted reaction first in the US on Monday and most major markets simply because they thought, okay, this was going to be another one of those, you know, bombs from the air for a few days and get out—something similar to what we saw in Venezuela or the 12-day war with Iran last year in June. 

But by Tuesday it became clear—and in fact Donald Trump himself has said he’s planning to be there for four or five weeks. He’s brought up the fact that more US servicemen may die in this conflict, that it may last longer than they thought. There’s a little bit of confusion as to what the goal is—whether it is simply security concerns, so destroying the rest of the nuclear apparatus in Iran or ballistic missile capabilities and so on, or regime change. Because regime change will take longer. Regime change will have to see boots-on-the-ground type of things. So I think by Tuesday markets were already a lot more nervous. They were pricing in a limited military escalation on Monday. They’re pricing a moderate one today. The key factor that pushed them over the cliff, so to speak, is the Strait of Hormuz and what’s happening there. Twenty percent of global oil shipments go through there, but for APAC it’s 85% of their oil imports that come through there. So it’s really important. 

So we saw today in APAC, for example, the difference between the markets that have oil like Malaysia and Indonesia and the ones who don’t and are reliant on this route like Japan, South Korea, Taiwan, Thailand—which all fell several percentage points. I think South Korea fell six or seven percent today. So there was a clear play on Tuesday about the oil shock that this could be, or at least if it’s a prolonged supply shock to oil to the region, that really bothered people. 

We’re seeing some of that play in Europe as well today. Again, Europe is an importer of oil and natural gas, and the rate of oil moves is a big supply chain factor for them. So that’s really the big question now—how much disruption. We haven’t seen like we saw in the first Gulf War, you know, oil infrastructure up in flames on CNN or anything like that. So that hasn’t happened yet. So the Strait of Hormuz being closed can be reopened relatively quickly. So it would be a small blip, but we don’t know yet. It’s really play-by-play day. 

Guillaume Roux-Chabert

And I’d like to rebound on what you just mentioned. Is it really only an oil game? Is there any difference between this war that we see now and past conflicts like the two Gulf Wars in the last years, the 12-day war, or the Arab Spring for that matter? 

Olivier d’Assier 

Right. So let’s start with the first two Gulf Wars. They were wars that were fought by the coalition of the willing. There was international agreement that this had to be done. This is unilateral. This is the US and Israel mostly—Netanyahu’s initiative—and he’s convinced Trump to join him in it. There was no coalition there. So that’s one difference. 

The Arab Spring did bring about quite a big shock to the oil supply chain as well as some supply shock in terms of infrastructure. So there was a bigger move there. So when we’re doing stress testing for a worsening or a regionalization of the conflict, we’re using the calibration period of the Arab Spring for the correlations. 

If we’re using limited bombing, then we will use the 12-day war from last year as a correlation calibration period. But if we’re using the first Gulf War, there was an oil shock but there was a coalition there, and it’s really not appropriate to use that historical scenario for this case because of that difference. 

Guillaume Roux-Chabert

Understood. Thanks, Olivier. We had to comment on the recent events—that’s why. But now maybe I have a question for Kris to put things a bit more in perspective. If we come back to 2025, which is not that far actually, the European markets completely outperformed the US market. Yet we did not hear much about this relative success in the US.  So Kris, you work for UEX. Why is that? What kind of trends do you see consolidating or strengthening in 2026 that were embedded in 2025? 

Kris Hopkins

Well, I think one of the major problems with the lack of attention on the moves in Europe was that the world’s attention outside of Europe itself—like in Asia or the US—was firmly focused on the US. The US media have been very heavily focused on AI and the tech segment. The Mag Seven were getting a massive amount of attention. And then out here in Asia itself, you had very strong performing markets. You had India doing very well, and then into 2025 you had very strong performance out of Japan. Taiwan and China were getting a lot of attention. And then in the second half of the year you had the start of that massive rally in Korea. So Europe has been a big disappointment for people outside of Europe for years, and it just missed the attention of the last two to three years. 

For me—I mean, I’ve been in Asia almost 25 years now—you can count on one hand and still have fingers left over the number of times I’ve been absolutely positive and bullish on Europe. And it’s been within the last two to three years, and that’s what a lot of the market missed. And even in terms of flows, we didn’t really see the big investment banks and the big asset manager houses start to really talk and push Europe until the end of Q1, beginning of Q2 and onwards. That’s really where we started to see the flows starting to migrate. But I think—and Olivier you can probably argue this as well—there’s still a massive amount of US and Asia money that are still very underweight invested in Europe. So the upside there is significant. 2025 was a great year for bank stocks in particular. Banks, telcos, utilities, oil and gas, basic resources, goods and services, and of course the defense index were clear winners last year. And they will be some of the trends that continue into 2026 as well. It will be almost a repeat of what we saw across 2025 and then some. As we move into the middle part of this year, I think the key driver is going to be a continuation of that great relocation out of the US into Europe, and then Asia will start to follow suit. 

Guillaume Roux-Chabert

Sure. Let’s maybe pause on what you just mentioned and drill down a little bit more, because I think that’s very interesting for the audience. According to you, what were the top winners and the top movers in 2025? You touched on it a bit, but can you develop that a little bit more? What does it tell us about the market? 

Kris Hopkins

So the broader European indexes did very well. In fact, as we entered into 2025, Europe had its best start to a year in almost 25 years. So straight out of the traps, the indexes focused on Germany and the broader European indices were doing very well. But it was among the sectors that a lot of performance was made. The banks sector, for example, was up around 65 to 70%. Telcos were up around 30%. Utilities were up anywhere between 23 and 25%. And we saw record high after record high being set across the year, particularly in the second half. That has continued into 2026 as well. Just before the Middle East conflict started to escalate, we had record highs set in two specific indices last week. So the attention is still there. There are particular segments on the equity side getting a lot more attention now and seeing flows migrating in that haven’t been seen for years. So that whole kind of undervaluation of European stocks—and their relative cheapness compared to their US counterparts—has been playing out over the last, I would say, 12 to 15 months. And there is still an undervaluation. Not as much, but it is still getting attention. People who were investing in some of the industrials in the US, for example, are now looking to European companies for some of that growth. 

So in 2026, I think we will see pretty much a carbon copy of the same indices and the same sectors doing well. Utilities, as I mentioned, banks—barring any more contagion from the credit markets—the banks and the financial sector should do very well. Defense will continue to do well as countries like Germany spend a lot of money on infrastructure and continue their multi-year runway around building out the industrial tech complex and infrastructure. Energy transition and utilities is another area that is looking interesting. Utilities were good in 2025, but as Europe’s grid investment wave continues to gain traction—and as AI and data center power demand continues to increase—you should see more spending there, and therefore more investment coming into those specific segments. 

The other one is healthcare. That’s been a bit of a strange one. It was an underperformer last year, but there were one or two specific stocks that were doing very well, mostly around the obesity drugs that were released. So there was massive performance in one specific name. I’m not sure I can mention the name, so I won’t. But in that healthcare segment in Europe, you’ve got a lot of work going on around obesity, diabetes, and cancer treatments. There’s a lot of pipeline catalysts for the European healthcare segment. I would imagine it won’t be an industry leader next year, but it will move into neutral to slightly better performance than we saw last year, because it was a bit of a laggard. I think there’s some upside to come from that segment. 

Guillaume Roux-Chabert

Yeah, that would be interesting to know. Sure. 

Olivier d’Assier

If I may add to that for a second. Simply to echo Kris’s point: I’ve been living in Asia for 30 years, and before that I lived in the US. And the perception is that Europe—you know, with the EU—you need 27 “yes” votes to get anything done. 

And that’s not the kind of team you want to have against Donald Trump, where it’s a team of one vote. 

Last year Donald Trump came in with a huge win—both the popular vote and the electoral college. He started imposing tariffs and everything else. So there was a lot of apprehension about how Europe could survive this and what kind of deal they could make. Pharmaceuticals, as Kris mentioned, underperformed a little bit because there was always that threat of a sector-level tariff on pharmaceuticals by Donald Trump. He levied that several times. So there was a little bit of a tariff risk premium added to that sector last year. I think that may go away this year. There has always been this perception that Europe would fold—and they didn’t. You also have a situation in Europe politically where all of the major leaders are extremely weak in the polls—less than 40% or even 30% popularity. You also have a lot of elections on the agenda this year. Hungarian elections in April, if they happen and if they’re not scrapped. Viktor Orbán has always been the “no” vote in the EU. This time it seems he might lose, according to the polls. If he does, that could turn into a “yes” vote, which would have implications for Ukraine, for example. You have UK local elections, which might determine whether Keir Starmer lasts the rest of the year as Prime Minister. So the UK might have its fourth or fifth Prime Minister in just a couple of years. So the perception outside Europe is that politically Europe is on the back foot and may not be able to stand up to Trump. So there was a little bit of apprehension about going overweight Europe, or at least about not going underweight. 

Kris Hopkins

But I think it’s been changing as well. There was a lot of over-dominance of China consumerism for European products. There was also an over-reliance on the US for defense. And if anything has changed over this last year, it’s that there is now less reliance on China and more of a push away from it. And also the whole Greenland situation has seen Europe—I struggle to say Europe “coming together”—but there’s definitely more of a sense of, you know, let’s take our defense into our own hands and not rely so much on the States for that support. So I think Europe is looking structurally a lot better than it has in the past. And that is translating into flows and migrations of currencies and assets into European-based products. Another area that I didn’t mention but I’ve noticed a lot this year—and when I last looked it was up around 10%—is the European real estate sector. 

That’s been one that has been largely overlooked. Now you’re starting to see in the data more value potentially being had in Europe, and more of that asset allocation and reallocation of capital coming into segments like that as well. So that’s another sector that I think is worth looking at. 

Guillaume Roux-Chabert

Olivier, do you relate to that approach from a sectoral point of view in terms of trends for Europe? 

Olivier d’Assier

Yes, yes. One of the things you have to keep in mind is that the European market is dominated by banks and industrials, right? Which, to the rest of the world, is not very sexy. You know, AI is sexy. Big tech is sexy. In the US, consumer discretionary is sexy—but not in Europe. However, this is the story in Europe. If you think about Europe coming to its own defense, I mean it’s investing in its own defense. That’s all industrials. Investing in its own AI tech stack and its own AI infrastructure—that’s all telecoms. And the banks are financing all of that. So these are the three biggest sectors in terms of that geopolitical megatrend of Europe taking care of its own destiny, so to speak, for once. The question mark is whether those leaders will still be around in a year or two, right? There’s a big chance that within two years Keir Starmer and maybe Macron also may no longer be in power. 

Then what? The far right is making gains in all of these countries. There’s a very real chance that by the end of 2029, the four biggest economies of Europe could be run by far-right governments. What does that mean? Will they go for more alignment with Donald Trump or not? 

Kris Hopkins

I mean, the whole landscape remains murky. But Olivier, you and I have had this discussion before—politics and politicians come and go. Different parties, left, right, center. But the companies themselves are fantastic. I mean, they are the history, the quality of some of these European names. And as we often talk about, the duality of these companies as well—they don’t just do one thing. They’re not single-product manufacturers in many cases. 

We talk about that a lot in our conversations. These companies are doing multiple things, making various products and offering immense value to investors outside of the region. I think the key is just getting that message out there and helping people understand what goes on in Europe, how the companies are built, and what exactly it is they do. And I think the value gets unlocked regardless of whoever is in power in any given year. 

Guillaume Roux-Chabert

Yeah. Maybe we can wrap this up with a question for both of you. Maybe a good closing question for you, Kris. What do you see as interesting opportunities in 2026 for the European market? And maybe you can also tell us what you think we should be cautious about for the European market. Maybe we start with you, Kris. 

Kris Hopkins

Well, I think the key risk is how long this current geopolitical tension goes on for. One thing we’ve all seen over the last 10 years is that markets tend to react less and less to massive events. Will what’s going on be just a blip? Will markets rebound and start printing all-time highs again in equities next week or the week after? We just don’t know. 

But I think when you take the longer-term lens of time, Europe still looks attractive. Passively investing into Europe and dollar-cost averaging into some of the products we have in Europe is still a very good way to go. I still think there’s a lot of value in European markets relative to the US. I think the asset reallocation will continue and will probably only get stronger as we move through the last few years of the Trump presidency. And then who knows what happens when his term finishes. Maybe he gets another term—we just don’t know. It’s unlikely, but you never know. I think European markets benefit from this global uncertainty. And in the end, it still comes down to value and the quality of the European names that we trade and hold in our indices. 

Guillaume Roux-Chabert

Understood. Yes, you mentioned the health sector and real estate—that might be two interesting sectors for Europe. 

And Olivier, maybe on the other side, what are the things we should be mindful of in the European market? What signs or inputs should investors be concerned about or keep in mind when thinking about Europe in their portfolios? 

Olivier d’Assier

Sure. To be clear, I’ve liked Europe since last year, and I think Europe is going to outperform the US for five years. That’s what I said back in January last year, and I still believe that’s the case. 

If we look at some of the things that might disrupt that view, one of them is obviously the US–China relationship. It’s very bad right now, and Europe benefits from that. But there are two meetings on the books between Trump and Xi this year—one at the end of this month and another one in November. If they were to reach one of those big global “beautiful deals” that cuts out Europe, that’s a risk people need to think about. The other one is the USMCA renewal in July. Right now, Europe benefits from the fact that the US and Canada are no longer as closely aligned, and Canada is now cozying up to Europe and to Australia and other partners. 

But the renewal of this trade deal is vital for Canada, Mexico, and the US. If, as a result of these negotiations, a big renewal deal comes together and those countries become closely aligned again, one of the conditions Trump may ask for is that they cut off Europe. So that is something to watch. So these are two things I would at least watch on the calendar. They are two events that could potentially disrupt investors’ recent enthusiasm for Europe. 

Guillaume Roux-Chabert

Excellent. Well, thank you very much, both of you. Your insights are really educational and informative. It’s very important for the audience. I hope we’ll have the opportunity to record other podcasts together to talk more about Europe or global macro from that perspective. Thanks, Kris. Thanks, Olivier.